[Federal Register Volume 85, Number 173 (Friday, September 4, 2020)]
[Notices]
[Pages 55337-55339]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-19653]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-89722; File No. SR-CboeBZX-2020-042]


Self-Regulatory Organizations; Cboe BZX Exchange, Inc.; Order 
Instituting Proceedings To Determine Whether To Approve or Disapprove a 
Proposed Rule Change To Accommodate Exchange Listing and Trading of 
Options-Linked Securities

September 1, 2020.
    On May 15, 2020, Cboe BZX Exchange, Inc. (``Exchange'' or ``BZX'') 
filed with the Securities and Exchange Commission (``Commission''), 
pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 
(``Act'') \1\ and Rule 19b-4 thereunder,\2\ a proposed rule change to 
amend BZX Rule 14.11(d) to

[[Page 55338]]

permit Exchange listing and trading of Options-Linked Securities. The 
proposed rule change was published for comment in the Federal Register 
on June 3, 2020.\3\
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ See Securities Exchange Act Release No. 88968 (May 28, 
2020), 85 FR 34270 (``Notice'').
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    On July 9, 2020, pursuant to Section 19(b)(2) of the Act,\4\ the 
Commission designated a longer period within which to approve the 
proposed rule change, disapprove the proposed rule change, or institute 
proceedings to determine whether to disapprove the proposed rule 
change.\5\ The Commission has received no comment letters on the 
proposed rule change.
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    \4\ 15 U.S.C. 78s(b)(2).
    \5\ See Securities Exchange Act Release No. 89267, 85 FR 42933 
(July 15, 2020). The Commission designated September 1, 2020 as the 
date by which the Commission shall approve or disapprove, or 
institute proceedings to determine whether to disapprove, the 
proposed rule change.
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    The Commission is issuing this order to institute proceedings 
pursuant to Section 19(b)(2)(B) of the Act \6\ to determine whether to 
approve or disapprove the proposed rule change.
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    \6\ 15 U.S.C. 78s(b)(2)(B).
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I. Description of the Proposal

    Exchange Rule 14.11(d) provides for Exchange listing and trading of 
Securities Linked to the Performance of Indexes and Commodities 
(Including Currencies) (``Linked Securities'').\7\ The Exchange 
proposes to amend Rule 14.11(d) to add Options-Linked Securities to the 
type of Linked Securities permitted to list and trade on the Exchange.
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    \7\ Rule 14.11(d) currently accommodates Exchange listing and 
trading of Equity Index-Linked Securities, Commodity-Linked 
Securities, Fixed Income Index-Linked Securities, Futures-Linked 
Securities, and Multifactor Index-Linked Securities (collectively 
referred to as ``Linked Securities'').
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    The proposed amendment would add Options-Linked Securities to the 
list of Linked-Securities set forth in paragraph (d) of Rule 14.11. 
Additionally, the proposal would provide that the payment at maturity 
with respect to Options-Linked Securities is based on the performance 
of U.S. exchange-traded options on any one or combination of the 
following: (a) Index Fund Shares; (b) Managed Fund Shares, (c) 
Exchange-Traded Fund Shares; (d) Linked Securities; (e) securities 
defined in Rule 14.11; (f) the S&P 100 Index, the S&P 500 Index, the 
Nasdaq 100 Index, the Dow Jones Industrial Average, the MSCI EAFE 
Index, the MSCI Emerging Markets Index, the NYSE FANG Index, the 
Russell 2000 Index, the Russell 1000 Index, the Russell 1000 Growth 
Index, the Russell 1000 Value Index, the Cboe Volatility Index, 
Communication Services Select Sector Index, the Consumer Discretionary 
Select Sector Index, the Consumer Staples Select Sector Index, the 
Energy Select Sector Index, the Financial Select Sector Index, the 
Health Care Select Sector Index, the Industrial Select Sector Index, 
the Materials Select Sector Index, the Real Estate Select Sector Index, 
the Technology Select Sector Index, or the Utilities Select Sector 
Index; or (g) a basket or index of any of the foregoing (``Options 
Reference Asset'').
    The Exchange proposes that Option-Linked Securities \8\ must meet 
both of the following initial listing criteria: (1) The value of the 
Options Reference Asset must be calculated and widely disseminated by 
one or more major market data vendors on at least a 15-second basis 
during the Exchange's regular market session; and (2) in the case of 
Options-Linked Securities that are periodically redeemable, the 
indicative value of the subject Options Linked Securities must be 
calculated and widely disseminated by the Exchange or one or more major 
market data vendors on at least a 15-second basis during the Exchange's 
regular market session. In addition, the Exchange will consider the 
suspension of trading in, and will initiate delisting proceedings 
pursuant to Rule 14.12 if any of the initial listing criteria described 
above are not continuously maintained. The Exchange also will consider 
the suspension of trading in, and will initiate delisting proceedings 
pursuant to Rule 14.12 under any of the following circumstances:
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    \8\ The proposal would move existing Rule 14.11(d)(2)(K)(v) 
(Multifactor Index-Linked Securities Listings Standards) to Rule 
14.11(d)(2)(K)(vi), and would set forth the Option-Linked Securities 
Listing Standards in Rule 14.11(d)(2)(K)(v).
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    (A) If the aggregate market value or the principal amount of the 
Options-Linked Securities publicly held is less than $400,000;
    (B) if an interruption to the dissemination of the value of the 
Options Reference Asset persists past the trading day in which it 
occurred or is no longer calculated or available and a new Options 
Reference Asset is substituted, unless the new Options Reference Asset 
meets the requirements of Rule 14.11(d)(2)(K); or
    (C) if such other event shall occur or condition exists which in 
the opinion of the Exchange makes further dealings on the Exchange 
inadvisable.\9\
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    \9\ According to the Exchange, the proposed continued listing 
criteria for Options-Linked Securities are substantially the same as 
existing Rules 14.11(d)(2)(K)(ii)(b) (Commodity-Linked Securities), 
14.11(d)(2)(K)(iii)(c) (Fixed Income-Linked Securities), and 
14.11(d)(2)(K)(iv)(c) (Futures-Linked Securities). The proposal 
would also add Options Reference Assets to the permitted types of 
Multifactor Reference Assets.
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    According to the Exchange, the proposed standards would continue to 
ensure transparency surrounding the listing process for Linked 
Securities. The Exchange also believes that the standards for listing 
and trading Options-Linked Securities are reasonably designed to 
promote a fair and orderly market for such securities. The proposed 
addition of Options Reference Assets, as described above, would also 
work in conjunction with the initial and continued listing criteria 
related to surveillance procedures and trading guidelines for Linked 
Securities. The Exchange further believes that its surveillance 
procedures are adequate to properly monitor the trading of Options-
Linked Securities in all trading sessions and to deter and detect 
violations of Exchange Rules.

II. Proceedings To Determine Whether To Approve or Disapprove SR-
CboeBZX-2020-042 and Grounds for Disapproval Under Consideration

    The Commission is instituting proceedings pursuant to Section 
19(b)(2)(B) of the Act \10\ to determine whether the proposed rule 
change should be approved or disapproved. Institution of such 
proceedings is appropriate at this time in view of the legal and policy 
issues raised by the proposed rule change. Institution of proceedings 
does not indicate that the Commission has reached any conclusions with 
respect to any of the issues involved. Rather, as described below, the 
Commission seeks and encourages interested persons to provide comments 
on the proposed rule change.
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    \10\ 15 U.S.C. 78s(b)(2)(B).
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    Pursuant to Section 19(b)(2)(B) of the Act,\11\ the Commission is 
providing notice of the grounds for disapproval under consideration. 
The Commission is instituting proceedings to allow for additional 
analysis of the proposed rule change's consistency with Section 6(b)(5) 
of the Act, which requires, among other things, that the rules of a 
national securities exchange be ``designed to prevent fraudulent and 
manipulative acts and practices, to promote just and equitable 
principles of trade, . . . to remove impediments to and perfect the 
mechanism of a free and open market and a national market system, and, 
in general, to protect investors and the public interest.'' \12\
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    \11\ Id.
    \12\ 15 U.S.C. 78f(b)(5).

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[[Page 55339]]

III. Procedure: Request for Written Comments

    The Commission requests that interested persons provide written 
submissions of their views, data, and arguments with respect to the 
issues identified above, as well as any other concerns they may have 
with the proposal. In particular, the Commission invites the written 
views of interested persons concerning whether the proposed rule change 
is consistent with Section 6(b)(5) or any other provision of the Act, 
or the rules and regulations thereunder. Although there do not appear 
to be any issues relevant to approval or disapproval that would be 
facilitated by an oral presentation of views, data, and arguments, the 
Commission will consider, pursuant to Rule 19b-4, any request for an 
opportunity to make an oral presentation.\13\
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    \13\ Section 19(b)(2) of the Act, as amended by the Securities 
Act Amendments of 1975, Public Law 94-29 (June 4, 1975), grants the 
Commission flexibility to determine what type of proceeding--either 
oral or notice and opportunity for written comments--is appropriate 
for consideration of a particular proposal by a self-regulatory 
organization. See Securities Act Amendments of 1975, Senate Comm. on 
Banking, Housing & Urban Affairs, S. Rep. No. 75, 94th Cong., 1st 
Sess. 30 (1975).
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    Interested persons are invited to submit written data, views, and 
arguments regarding whether the proposed rule change should be approved 
or disapproved by September 25, 2020. Any person who wishes to file a 
rebuttal to any other person's submission must file that rebuttal by 
October 9, 2020.
    The Commission asks that commenters address the sufficiency of the 
Exchange's statements in support of the proposal, which are set forth 
in the Notice,\14\ and any other issues raised by the proposed rule 
change under the Act. As discussed above, the Exchange proposes to 
adopt generic listing standards for Options-Linked Securities. The 
Exchange takes the position that the proposed Options-Linked Securities 
generic listing standards would continue to ensure transparency 
surrounding the listing process for Linked Securities. The Exchange 
also states that the standards for listing and trading Options-Linked 
Securities are reasonably designed to promote a fair and orderly market 
for such securities.
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    \14\ See supra note 3.
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    The Commission seeks commenters' views regarding whether the 
proposal is designed to protect investors and the public interest, and, 
in particular, whether there is adequate transparency and disclosure 
related to the options to which Options-Linked Securities or 
Multifactor Index-Linked Securities are proposed to be linked. In 
addition, the Commission seeks comment regarding whether additional 
requirements, either qualitative or quantitative, relating to either 
the generic listing standards for Options Linked Securities or the 
definition of Options Reference Assets, would help to ensure that the 
proposal is designed to prevent fraudulent and manipulative acts and 
practices.
    Comments may be submitted by any of the following methods:

Electronic Comments

     Use the Commission's internet comment form (http://www.sec.gov/rules/sro.shtml); or
     Send an email to [email protected]. Please include 
File Number SR-CboeBZX-2020-042 on the subject line.

Paper Comments

     Send paper comments in triplicate to Secretary, Securities 
and Exchange Commission, 100 F Street NE, Washington, DC 20549-1090.

All submissions should refer to File Number SR-CboeBZX-2020-042. This 
file number should be included on the subject line if email is used. To 
help the Commission process and review your comments more efficiently, 
please use only one method. The Commission will post all comments on 
the Commission's internet website (http://www.sec.gov/rules/sro.shtml). 
Copies of the submission, all subsequent amendments, all written 
statements with respect to the proposed rule change that are filed with 
the Commission, and all written communications relating to the proposed 
rule change between the Commission and any person, other than those 
that may be withheld from the public in accordance with the provisions 
of 5 U.S.C. 552, will be available for website viewing and printing in 
the Commission's Public Reference Room, 100 F Street NE, Washington, DC 
20549, on official business days between the hours of 10:00 a.m. and 
3:00 p.m. Copies of the filing also will be available for inspection 
and copying at the principal office of the Exchange. All comments 
received will be posted without change. Persons submitting comments are 
cautioned that we do not redact or edit personal identifying 
information from comment submissions. You should submit only 
information that you wish to make available publicly. All submissions 
should refer to File Number SR-CboeBZX-2020-042 and should be submitted 
on or before September 25, 2020. Rebuttal comments should be submitted 
by October 9, 2020.

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\15\
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    \15\ 17 CFR 200.30-3(a)(57).
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J. Matthew DeLesDernier,
Assistant Secretary.
[FR Doc. 2020-19653 Filed 9-3-20; 8:45 am]
BILLING CODE 8011-01-P